1) Look at protecting the downside, before daring to look up when picking company shares.
2) You'll often hear it said that "Volatility does not represent risk, but creates opportunity". This is true. But look at the numbers, and do your best to weigh up the future before deciding for yourself.
3) Similarly, investing when the overall mood is the darkest and most fearful is most likely to produce above average returns. The same goes for individual companies; bargains tend to present themselves when a company's earnings have taken -- or are expected to take -- a temporary bashing. Focus on the longer term.
4) Buy companies with excess cash flow.
5) Screen for value, then make sure the basic numbers at least make sense for an investment before delving further.
6) When delving further, use a Warren Buffet-like discounted cash-flow method to help determine underlying value.
7) Ask yourself whether you'd buy the whole company if you could.
Don't be fooled by reputation, how large and "too big to fail" a company may seem, nor by how long it has been around. Stock market history is littered with examples of when this kind of misplaced trust has cost investors dearly.
9) Don't listen to the directors if the numbers don't make sense to begin with. If the numbers do stack up, take what the directors say with a healthy dose of salt. The same goes for brokers' forecasts.
10) But do take serious director buying of shares seriously.
11) Accept that you will make mistakes, whatever the market conditions, and however thoroughly you run the numbers.
12) Make sure you understand how the company makes its profits and the essence of what it does.
13) Stay with your investment philosophy. Don't let your head be turned by the latest fad or "new paradigm". You'll win out in the end.
14) John Maynard Keynes said: "The market can stay irrational longer than you can stay solvent". But this is only true if you've overdone it. Don't invest more than you can truly afford to lose.
15) Finally, and most importantly of all, be patient. If there's nothing to buy, sit on your hands. If the investments you have remain fundamentally sound, but haven't moved or have decreased in value, either do nothing or average down if the story is essentially unchanged.
Published in Investing Strategy